Everyone wants to have a comfortable retirement. The reality though is that only a small percentage of people are achieving that goal. But it doesn’t have to be that way. There are surprisingly easy steps to take, especially when starting young, to achieve an enjoyable retirement. But you have to get started, and you really need to get started now. Here’s why and how to start saving for a fantastic retirement.

What is Retirement?

The dictionary defines retirement as “the action or fact of leaving one’s job and ceasing to work” – which I agree is a generally accepted way to describe it. Another term that aligns with this same description might be Financial Independence. Once you’ve achieve a certain point where you are no longer financially dependent on income from a job – regardless of your age – then you are a candidate for retirement.

That’s right – retirement can happen regardless of your age. It isn’t an age number but rather a financial number. Even though most Americans retire in their 60s, there are a growing number of people who are retiring younger and younger. My wife and I retired in our mid-40s. I’ve read the stories of many other couples who have retired in their 30s and 40s. Even retiring in your 50s would put you way ahead of the average American.

How are Americans Doing on Retirement Goals?

Even with the recent movement called FIRE – Financial Independence and Early Retirement – the retirement statistics for the average American are a bit depressing. Here are a few statistics to consider from a 2016 study performed by GoBankingRates:

More than a third of Americans have absolutely nothing saved toward retirement

The average 50-year-old only has $60,000 saved for retirement. That’s nowhere near where they should be by that age if they were on track with retirement goals.

Only 18% of American workers are “very confident” that they’ll have enough money for a comfortable retirement.

A Comfortable Retirement IS Possible!

In spite of the statistics, a comfortable retirement is not only possible, it can actually be pretty easy to achieve. It doesn’t just happen on its own though. It takes a plan – and actually following the plan.

The longer you wait to get started with your retirement saving, the more you’ll need to save. Seriously. You might think “If I need a million dollars, then I’ll need to save a million – regardless of when I start” – but that is absolutely wrong. That line of thinking ignores the power of compounding.

Did you know that your money will double every ten years if you can earn about 7% on it? That means $10,000 turns into $20,000 after ten years. Then it turns into $40,000 after ten more years. Ten years later you have $80,000 (actually $81,165). That’s right – your money can grow 8x in just thirty years with a 7% return! This is called compounding – every time your money grows, that additional grow also starts to grow. So it’s like a snowball effect for your money. And this example is just a single lump-sum investment. Someone who invests consistently over time can grow their money even more.

The Power of Compounding Over Time

Don’t worry. I’m not going to bore you with a ton of math. I do want to give some examples though to make sure you understand the real power behind compounded returns.

As mentioned above, a single $10,000 investment can turn into more than $80,000 over thirty years when earning 7%.

What if that same person started with $10,000 but then decided to add $500 each month to the account? Believe it or not, the total balance at the end of that same period would be more than $685,000!

One last example to consider: If that same person – investing $10,000 initially then $500 each month – were able to achieve a 9% return instead of 7%, guess what the balance would be then? $1,062,677. That’s right – they’d be millionaires in thirty years. Start in your 20s and be a millionaire in your 50s! Start at 50 and be a millionaire by 70 – which is actually the age at which many people wind up retiring in recent years.

Is it Reasonable to Save That Much Each Month?

Did you know that the average car payment for people in the United States is $503/month? If people can afford $500/month for a car, certainly they could afford the same amount to build a comfortable retirement. It might require spending a little time considering what someone’s highest priorities are. If driving a brand new car all the time is a higher priority than retiring wealthy, well, there you go. But if your future financial well-being is more important than what you drive, it wouldn’t be that hard to shift thinking and “find” the cash to save.

What are Realistic Returns to Expect?

If you put your money in a savings account, you’d have been lucky over the last ten years to average 1% per year. If you had put the money instead into an index fund that tracks the S&P 500, like SPY, then over the past ten years your average annual return would have been 6.93%.

Really though, what returns to expect depends on a number of factors. One of those factors is what you invest in. The more conservative the investment, the lower the volatility (value swings) but also lower the returns. The more aggressive portfolio will have higher volatility but also higher returns.

Do you want to know what REALLY impacts expected returns the most though? Time. That’s why you need to start saving (investing!) for retirement immediately. The longer the timeline, the better the returns. Also, the longer your timeline, the lower your volatility should be. Volatility just means variations – market swings. High volatility means something might be way up or way down in a period. It would vary a lot from the average. Lower volatility means those swings would be smaller and the actual return should be closer to the average expected return.

A number of people have analyzed the S&P 500 market index looking at rolling periods of varying lengths. Here is a link to one such article if you love details . What an analysis shows is exactly what I mentioned in the paragraph above. Specifically, what the data shows is this:

Rolling Period

Apx. Maximum Return

Apx. Minimum Return

1- Year

+150%

-50%

5 – Year

+35%

-20%

10 – Year

+20%

-5%

20 – Year

+18%

+2%*

25 – Year

+17%

+5%*

30 – Year

+14%

+8%*

*Yes, that’s right. There hasn’t been a 20-year (or even 15-year) period of investing in the S&P 500 index where the average annual return has been negative. No one has lost money investing in this index for at least 15 years.

So if you were to invest in an index to track the S&P 500 (which, by the way, master investor Warren Buffet has stated would be the best move for average investors) and you left your money invested for 30 years, the 7% in my example would be very conservative. Getting somewhere more like 8-10% average annual returns over a long period like that is probably more likely – based on the historical data.

Okay Then, So How do I Get Started?

Hopefully you now understand the power of compounding returns over an extended period of time. It’s amazing how much wealth can be accumulated when you start early and invest consistently.

How do you get started if you have no idea where to start? There are several popular ways to get started with investing, and each has a different place depending on your needs.

Financial Advisors / Investment Advisors

There is an entire industry out there with people who will invest your money for you. A good advisor should meet with you to understand your needs, your goals, your family situation, your risk tolerance level, and more. Then they will recommend a specific investment portfolio for you and actually make the investments for you. They’ll also check on your investments over time and let you know if they feel anything needs to be adjusted.

The average fee for this type of service runs about 1% of the investment amount annually. Those fees can really add up over time but someone who wants a full hands-off do-it-all-for-me investing solution might want to consider it. It’s nice to know you can just pick up the phone and talk to your advisor when you’re feeling nervous or need some assurance on your plan or if something changes in your life situation.

Robo-Advisors / Robo-Investing

A step below having a dedicated person manually handling your investments for you is a robo-advisor solution. Rather than a person doing the analysis and work for you, computer programs take information that you provide then make recommendations. Those same programs will also do the investing for you. Honestly, even financial advisors use software to make their recommendations – very few manually perform all their own research now. So this isn’t that much different except, and for some people this is important, with a robo-advisor you don’t get to call someone to chat about things.

Since a person isn’t working with clients all day, the robo-advisor solutions are a lot lower cost. In general they are at least ½ the cost of traditional advisors, but often as low as ¼ of the cost. For example Betterment’s base plan is just .25% of invested assets annually – a quarter of standard advisor fees. My wife and I use Betterment ourselves for the bulk of our investments. It’s a great option for someone just getting started or even for people with millions to invest. We have a substantial amount of money invested with them and have been very happy with the service and returns. (You can read our full Betterment review here if you want.)

Do it yourself (DIY) investing

If you have interest in researching both specific investments and also different portfolio diversification models, then there are even lower cost options available. Brokerages like Fidelity or TD Ameritrade will let you create your own custom investment portfolio and manage it yourself. In these cases there are generally some fees to perform the trades (purchase the stocks or bonds) but there aren’t any ongoing management fees like other solutions.

This is a great low-cost solution and the way we invested for many years. It can be a lot of work though. Once the robo-investing options came on the scene and proved themselves, I decided it was worth the small annual fee to have them handle all of the investment management for me.

Don’t Wait, Get Started Now

As demonstrated, the shorter your timeline, the higher your risk and lower your average returns. So don’t wait. Get started now if you haven’t already. The longer you delay the harder it will be to achieve your retirement goals.

Join that 18% of Americans who are “very confident” that they’ll achieve their retirement goals. You can thank me later when you’re wealthy and enjoying the retired life!

Brad Kingsley is a financial coach with MaximizeYourMoney.com. While he does not provide specific investment advice he does educate people and help them build their own financial plans. With proper financial planning, anyone can lower their risk while also increasing their wealth. Personal finance doesn’t have to be complicated with the right help.

Thanks Brian! Yeah, it’s very powerful when people can wrap their heads around this (well, and also take action) young! We coach a lot of people in their early-20s and I love working with them – there is *SO* much potential!

I’m with you (mostly) on the FA point. I think people should learn financial basics and handle financial planning on their own. BUT, the statistics show that the reality is a large percentage of people just won’t do it. In that case, it might make sense to “outsource” to an advisor.

The only part I’m not totally in agreement with is that higher wealth might justify it. My personal experience is just the opposite. I have a few million in personal investments that I manage myself – with a lot of help from Betterment. 🙂 With a large investment amount I cringe at the thought of handing over 1% to someone to do something that I can do myself, or automate.

Get started now is really the key. When you’re just getting started investing, the amounts aren’t so big: if you make a slight mistake with asset allocation or fund choice, it’s not really going to matter. The only big cost is opportunity cost: from not investing in something.

I feel like I started early when I was younger but man, I wish I had stuffed more and more into the market when I was younger. Time in the market is so much more valuable than timing the market as your 20 year S&P 500 rolling period shows. Great article. Thanks for sharing!!!